🔔 Inflation falls to 1.70% in February

Yet so does the number of inflation-beating accounts

The inflation rate, as measured by the Consumer Prices Index (CPI), fell back in February 2020 to 1.70%, following its leap up to 1.80% in January – still 0.30% below the Government’s target of 2%. This latest announcement comes before the shock of Coronavirus had really taken hold in the UK, so we'll have to wait and see what happens next.

The main influence on the slowdown of inflation, is a drop in fuel prices along with games, toys and hobbies, which in the current climate may come in handy for all of those parents now home with their children. Other falls came from housing, gas, electricity and water which could also be some relief right now.

The increases to offset the falls came from hotels and restaurants which only goes to highlight that the current rate does not reflect the world we are now in, as most restaurants and hotels have had to close their doors due to the Coronavirus lockdown.

Lower inflation is usually good news for savers as it should means that more accounts will pay an interest rate that at least keep up with the cost of living.

The bad news, however, is that with two base rate cuts occurring in March, taking base rate down to its lowest ever level of 0.10%, there are already fewer accounts that beat inflation than there were last month. And this is expected to fall further.

There are currently just 45 accounts* that pay at least 1.70% gross/AER and all are fixed term accounts.

BLME - a Sharia-compliant bank - is paying 1.75% AER on its 2 Year Premier Deposit Account. And the very best rate currently available is with Gatehouse Bank – another Sharia provider - paying 2% AER. The highest non Sharia account is the United Bank UK 7 Year Fixed Term Deposit paying 1.95%.

There are also a number of interest-beating children’s savings accounts that could be used to counteract the effects of inflation - albeit usually for smaller amounts.

It still remains vital for savers to choose the highest-paying accounts to try and mitigate the effects of inflation.

If you leave your funds languishing in an easy access account paying 0.10%, a deposit of £50,000 would have fallen to just £46,189 in real terms over five years, assuming an inflation rate of 1.70%.

If you were to choose the best easy access account available today, paying 1.30% AER, while the real value of your money would still be lower, it would be worth £2,835 more, at £49,024. Better still if you choose the best five-year rate available today with Gatehouse Bank, paying 2%, it would be worth £4,553 more and, more importantly, it would be worth more in real terms (£50,742)!

More interest can be earned, to help slow down the erosion of savers' cash if they refuse to settle for poor rates.

Those who leave their cash festering with a high street bank will really feel the effect of inflation – they are being robbed as high street banks pay some of the worst savings rates on the market.

But savers do not have to take this lying down and accept paltry rates - switching to mitigate the effect of inflation is far better than leaving the funds earning next to nothing and by taking advantage of best buy rates, they are reducing the effect of inflation on their hard-earned savings.